Working Paper: Determinants and Consequences of Auditors' Consultations with the National Office

Paper Author: Matthew Sherwood, Miguel Minutti-Meza, and Ally Zimmerman

Abstract: Audit teams seek national office (“NO”) consultations (“NOCs”) to address complex accounting and auditing issues. However, there is little evidence on engagement teams’ use of NOCs and the effect of NOCs on audit quality. We comprehensively describe the NOC process based on our analysis of PCAOB standards, firm methodologies, and interviews. NOCs entail a complex interaction between auditors and NO experts and a mix of informal, formal, mandatory, and voluntary consultations on accounting and auditing topics. Next, we analyze data from PCAOB inspections and find that most inspected engagements have NOCs and engagement characteristics predict well NOC use. Lastly, the NOC process inherently makes typical consultations a weak incremental determinant of audit quality. However, some types are associated with higher audit quality: fewer Part I findings (involving more NO effort) and fewer subsequent restatements (involving accounting topics and earlier NO involvement).

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